CASE DIGEST : ATTY. ROGELIO B. DE GUZMAN VS. SPOUSES BARTOLOME AND SUSAN SANTOS G.R. No. 222957. March 29, 2023 GAERLAN

FACTS : Petitioner Rogelio B. De Guzman owned a house and lot in Taytay, Rizal, covered by TCT No. 5788. In November 2000, he entered into a Contract to Sell with respondents spouses Bartolome and Susan Santos for the purchase price of ₱1,500,000.00, payable through a ₱250,000.00 down payment and monthly installments of ₱15,000.00 with 9% annual interest on the unpaid balance. Upon payment of the down payment, the spouses Santos immediately took possession of the property. However, they failed to pay the monthly installments, vacated the property in February 2001, and subsequently filed a complaint for rescission of the contract, recovery of their down payment (less reasonable rental), and damages.

The RTC initially dismissed the complaint and ordered the spouses Santos to pay the remaining purchase price with interest. Thereafter, the spouses Santos discovered that De Guzman had already sold the subject property to a third party, Elizabeth Algoso, on August 17, 2005 while the case was still pending. On the basis of this newly discovered fact, they successfully moved for a new trial. The RTC set aside its earlier decision, declared the Contract to Sell rescinded, and ordered De Guzman to return the balance of the down payment amounting to ₱208,500.00 with legal interest. The RTC held that De Guzman acted in bad faith by disposing of the property under litigation without informing either the court or the opposing party, thereby rendering the enforcement of the contract impossible. The Court of Appeals affirmed the RTC, ruling that the unauthorized sale of the property during the pendency of the case constituted bad faith and justified the grant of a new trial in the interest of justice and equity.

ISSUE : WON the CA correctly affirmed the rescission of the Contract to Sell and WON De Guzman is liable to reimburse the spouses Santos their down payment

HELD : The Supreme Court granted the petition and reversed the rulings of the RTC and the Court of Appeals. It held that under a Contract to Sell, ownership remains with the seller until the buyer fully pays the purchase price. Since the spouses Santos admittedly failed to pay the agreed installments, the suspensive condition was never fulfilled, and De Guzman had no obligation to transfer ownership. Consequently, his subsequent sale of the property to a third party, although done in bad faith during the pendency of the case, was nevertheless valid and did not constitute a legal ground to rescind the Contract to Sell or require the return of the down payment. At most, the buyers could have sought damages.

The Court further ruled that both parties acted in bad faith. The spouses Santos deliberately defaulted on their payment obligations, abandoned the property, and then sought rescission, while De Guzman improperly sold the property during the litigation. Applying the doctrine of in pari delicto, the Court refused to grant relief to either party, leaving them where it found them. Moreover, pursuant to the express terms of the Contract to Sell, the spouses Santos' failure to pay the installments resulted in the automatic cancellation of the contract and forfeiture of all payments made, consistent with the principle that contracts have the force of law between the parties and must be complied with in good faith.